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Chart of the Day: what is the real inflation rate?
The consumer price index (CPI) rose to 4.4% in July. This is the same data that was recently described by a trio of experts as ‘misleading the general public and of doubtful relevance for policy purpose'.
by Chris Marshall on Aug 16, 2011 at 12:53
Official inflation data are ‘misleading the general public and of doubtful relevance for policy purposes,’ concluded a trio of international experts in a report earlier this year.
The government's preferred measure, the consumer price index (CPI), which today came in at 4.4% for July, was described in the research published back in February as ‘little more than a political convenience’, mostly to allow comparisons with EU data.
These experts’ conclusions validated the experiences of people all round the country, who look at inflation figures and see something abstract, generalised and possibly far removed from their real-life experience and costs. The comments made by readers under Citywire's news article on the economists' critique are telling. 'No, we are not mislead by official data,' wrote Tony Peterson. 'We know that official statistics are bent, and we can measure the fact from our own experience.'
The same economists observed in their report: ‘Those in authority have always had a vested interest in defusing this situation by showing slower price increases.’ The government’s decision to start using the CPI measure to uprate benefits instead of the retail prices index (RPI) that includes housing costs (and came in at 5% in July) is one such example.
Attempts have been made to provide a more representative picture of inflation for different sections of society, with several groups campaigning hard to show that the elderly face higher inflation than others. The chart above from Saga (using ONS data) illustrates how big the differences can be between inflation (in this case RPI) between pensioners and the rest of us. At its most extreme, as the graph shows, in 2008 RPI inflation for one person pensioner households hit 10%.
People’s inflation also varies according to where they live, the socio-economic group they are in and a myriad of other differences.
Efforts are being made to better capture trends in prices. Google is creating a new inflation measure – the Google price index – based on the cost of goods sold online. The tech giant hopes this will prove more accurate and up-to-date than official statistics.
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